I recently saw an advertisement for the Quicken “Secure Advantage” loan, so I thought I’d do a review.
First and foremost, the Quicken Secure Advantage is a negative amortization loan, also known as a “neg-am” or option-arm loan, which allows borrowers to defer interest by paying less than the actual interest rate.
It’s important to note that negative amortization loans are out of fashion, as evidenced by the release of loan programs like the Ditech Sleep EZ loan, which highlights the lack of negative amortization as a loan program benefit.
Now back to the Quicken Secure Advantage. The loan program consists of four mortgage payment options, including a minimum payment (negative amortization), an interest-only payment, a 30-yr fixed mortgage payment, and a 15-yr payment.
Each month borrowers can choose the type of mortgage payment they’d like to make until the option is no longer available.
However, this flexibility can get borrowers into trouble, especially once the minimum payment option disappears when the loan reaches the maximum limit of 115% (110% in New York) or after 5 to 7 years, whichever comes first.
At that time, the minimum payment option falls off, and the interest-only payment option becomes the new minimum payment because no additional interest can be deferred.
Remember, the interest-only payment is required to repay all the required interest each month, and every time you make a minimum payment, you are deferring interest.
The interest-only option is only available for the first 10 years, at which point the loan becomes a fully-amortizing six-month adjustable rate mortgage based on a twenty-year amortization, with only two payment options available, the 30yr payment and the 15yr payment.
The change in monthly payment can be quite substantial, possibly even double the minimum payment, mainly because the minimum payment on the Secure Advantage loan is based on your mortgage rate minus 3%.
Though the Secure Advantage offers payment flexibility, making the minimum payment each month will lead to an excess amount of interest which will be added to the existing loan balance, making future payments much larger.
And the less you pay now, the more you will pay later. Don’t be fooled into thinking you can make lower mortgage payments early on and not make up for them at some point down the road.